Daily Archives: June 10, 2011

Last week, Martin Wolf drew international attention to the work of Professor Sinn of the German IFO Institute, who has made a series of alarming claims about the build-up of Target2 imbalances within the European System of Central Banks. Professor Sinn focused on the fact that the Bundesbank is now in credit to other European central banks to the tune of €325bn, with the offsetting debits being held by the central banks of troubled peripheral economies (which Professor Sinn calls the GIPS, an acronym which I prefer to the PIGS).

Sinn also claimed that the provision of German credit to the GIPS had effectively sucked lending capability out of the German banks, thus holding back the German economic recovery. This has triggered an intense debate about whether Germany is at risk from the potential failure of these debts, and whether the ECB has engaged in a “stealth bailout” of the GIPS. (For latecomers to the debate, see Paul Krugman, Tracy Alloway, Olaf Storbeck and Geoffrey Smith.) Read more

Gavyn Davies

on macroeconomics

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About Gavyn

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A blog on macroeconomics, economic policymaking and the financial markets. Gavyn usually writes about a key topic of the week on Sunday.

If you have yet to register on FT.com you will be asked to do so before you begin to read this blog. However, the posts remain free.

Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.

He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.

Gavyn Davies is an active investor and may have financial interests and holdings in any of the topics about which he writes. The views expressed are solely those of Mr Davies and in no way reflect the views of Prisma Capital Partners LP, Fulcrum Asset Management LLP, their respective affiliates or representatives. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments.